October 28, 2025 • 17 mins
In Episode 159 of the Teaching Tax Flow Podcast, hosts John Tripolsky and Chris Picciurro, CPA, tackle one of the most talked-about provisions of the One Big Beautiful Bill Act (OB3).. No Tax on Tips rule.
This episode cuts through the noise to clarify what “no tax” really means, who qualifies, and how tipped workers and self-employed individuals can take advantage of this new deduction starting in 2025.
Chris breaks down eligibility factors, income phase-outs, and which occupations are recognized as “customarily tipped.” From servers and stylists to rideshare drivers and entertainers, this new rule has far-reaching implications, but it’s not as simple as it sounds. The hosts also explore examples illustrating how this temporary deduction applies between 2025 and 2028, why voluntary tips matter, and what both employees and employers need to track to stay compliant.
KEY TAKEAWAYS
• The No Tax on Tips deduction (effective 2025 – 2028) allows qualifying workers to deduct up to $25,000 of voluntary tips from taxable income.
• Applies to both employees and self-employed individuals in occupations that customarily receive tips.
• Only voluntary cash or card tips qualify — automatic “service charges” are not eligible.
• Social Security and Medicare (FICA) taxes still apply — this affects only federal income tax.
• Phase-outs begin at $150 K (single) / $300 K (MFJ); full phase-out at $400 K (single) / $550 K (MFJ).
• Married couples must file jointly to claim the deduction.
• Proper record-keeping of all voluntary tips is essential for compliance and deduction accuracy.
RESOURCES
• Teaching Tax Flow Website: https://www.teachingtaxflow.com
• Defeating Taxes Community: https://www.defeatingtaxes.com
• YouTube Channel: https://www.youtube.com/@teachingtaxflow
EPISODE SPONSOR
Sunsets & Dinks
Save 15% at https://www.teachingtaxflow.com/pickleball with code TTF15
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- (00:01) - Exploring IRS Policy on No Tax for Tips
- (01:38) - Temporary Tax Exemption on Tips from 2025 to 2028
- (05:13) - Understanding Qualified Tips and Occupational Eligibility for Tax Exclusion
- (11:01) - Understanding Tip Deductions and Income Phase-Outs for Tax Returns
- (16:33) - Teaching Tax Flow Podcast Offers Tax Tips and Investment Advice
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Intro (00:01):
Hey everyone and welcome back to the Teaching Tax Flow
podcast. Today on episode number159, we are exploring just what
in the world the IRS means by notax, on tips. But first, let's
hear from our episode sponsor.
Ad Read (00:21):
Hi. Chris Picciurro here, founder of Teaching Tax
Flow, cohost of the Teaching TaxFlow podcast and pickleball
enthusiast. Yes. If you listento the podcast, you know almost
every episode we talk aboutpickleball, the most popular and
growing sport in America. Wehave tons of opportunities for
paddles and and pickleballs, butwe don't have a lot of great
gear on the market. Why I'm soexcited to announce that Sunsets
(00:44):
and Dinks are now a sponsor ofthe Teaching Tax Flow podcast
and produce amazing gear notonly to look at, but you feel
confident on the court. Becauseyou are part of the Teaching Tax
Flow community, you get a 15%discount on all your orders with
them. I know I love the gear Ireceived, and I have quite a
good record while wearing it.Believe it or not, even at my
(01:06):
level. Go to teachingtaxflow.combackslash pickleball and simply
enter t t f 15 in the serve uppromo code area of your paddle
rack.
John Tripolsky (01:18):
Hey, everybody, and welcome back to the teaching
tax flow podcast. Today, we'regonna jump directly into
something we know that there's alot of interest about, a lot of
confusion, but one thing thatthere might not be is tax on
these tips. So we're about tostart talking. Again, this is
the output of the one bigbeautiful bill act that I'm sure
everybody's heard a lot about.And you don't wanna hear it from
me.
(01:38):
We brought Chris Pacquero backto his own show as always, the
man with all the knowledgearound here for the most part.
How's it going, man? How are youdoing?
Chris Picciurro, CPA (01:45):
It's going well. How are you doing today?
John Tripolsky (01:47):
Hey. Pretty good, man. No room for dad jokes
today. We're jumping straightinto this thing again because I
think we're gonna, we're gonnacut the BS, we should say, and
really say what this is. And isit is it literally as clear as
that the IRS is not going tocharge any tax on any tips
Right.
Anybody receives. Is that thecase?
Chris Picciurro, CPA (02:07):
Wouldn't that be easy? Then we wouldn't
do a podcast if we just do a oneminute reel. Exactly. No. That
it's not that easy.
Now we know during the mostrecent presidential election,
there's a lot of talk about nottaxing tips. So part of the one
big beautiful bill act, whichobviously had to have bipartisan
support, was the concept of notax on tips, and that actually
(02:31):
comes into effect in 2025, the2025 tax year. Now it's not that
easy. Right? There are somerules and regulations I'm gonna
work through to determine ifyour tips are exempt from
federal income tax.
Now there's not gonna be exemptfrom self employment tax, so
(02:51):
they're not gonna be exempt frompayroll tax. But let's talk
about what's going on becausethere wasn't, like, had a part
of the one big beautiful billact. This is a temporary rule
change that's gonna affect taxyears 2025 through 2028 for now.
No coincidence that that is theterm of this, the current
(03:14):
president. So we will see dependif this is something that gets
discussed, extended with thenext presidential election.
But right now, we know from '25,'26, '27, '28, these four tax
back these four tax years, thereis a no tax on tip rule. And
what does that mean? Well, let'stip the workers deduct up to
(03:39):
$25,000 of tips from theirtaxable income. As you said,
John, it's not a automaticdeduction. There are
qualifications.
There are income phase outs.There are industry specific
requirements. We're gonna diveinto that. Right?
John Tripolsky (03:58):
And this, honestly, out of everything that
we heard leading up to when thatbill was signed, this is on I
mean, speaking for myself, thisis the one that really surprised
me, I think, that made it allthe way through. I mean and,
again, I think it it leads alittle bit to the the, we'll
say, not miscommunication, butkind of the confusion maybe of
somebody thinking kinda like howhow I did at that time. They're
(04:19):
like, oh, they're not gonna taxany tips. Well, it's a lot of
income that's in the system ormaybe not in the system, which
I'm sure we're gonna chat on alittle bit too. Why would they
do that?
That's like the IRS giving awayfree money. It's like them going
down the roads and just, youknow, throwing checks out or
something like that. So, yeah,when as we walk through this,
I'm sure we're gonna uncoverthat a little bit too.
Chris Picciurro, CPA: Absolutely. So this is a so (04:38):
undefined
something to consider. This isavailable to both employees and
independent contractors or selfemployed individuals. So most
namingly, you know, selfemployed people, like, that
receive tips, who would that be?Well, Uber drivers, Lyft
drivers, taxicab, DoorDash, allthose type of of self employed
(05:03):
people in in a variety ofdifferent musicians.
You know what I mean? So they'reself employed. They receive
tips, so they have they'reeligible. Let's first define
what a qualified tip is.Qualified tip, this is very
important, is a voluntary cashor credit card tip received
directly from customers throughor through tip sharing.
(05:24):
So, John, you know, I worked inrestaurants before. Many people
have. Tip sharing is know, let'ssay there are four bartenders,
and they just all throw the tipsinto the to a pool, either paid
electronically or paid cash, andthen they then they share them
out. Very important term there,voluntarily. I was recently on a
(05:44):
trip, with our family.
We met up with a another family.We went out to a restaurant, got
crap service. So I'm not I'dlove to throw this restaurant
under the bus, but I'm not goingto. But because there was eight
of us, they decided that we weregonna get charged an 18% service
charge because we had a, quote,large party, which in this case
(06:05):
gave them a green light to givecrap service. Now that being
said, that was not a voluntarytip.
That was that was assessed toour table as a service charge.
Anything above the that wouldhave been voluntary on our part,
and l and that server would havebeen eligible to exclude that
(06:28):
tip from their income. So thisis where I think we're gonna see
a lot of reporting issues in alot of restaurants maybe
changing things up from thatservice charge or whatever they
call it when you have anautomatic tip amount or not with
a big party to it beingvoluntary. So, remember,
qualified tips have to bevoluntary. As I mentioned, FICA
(06:51):
tax or Social Security,Medicare, and self employment
tax still apply.
So this is a reduction offederal tax. You're gonna have
to check with your state if yourstate's gonna comply with the
federal tax rule. Right? Becausenot every state is gonna comply
with those rules.
John Tripolsky (07:09):
And I'm glad that we we hit that nail on the
head pretty early on too aboutthe voluntary part because I
think that was one even when Ilearned about that semi
recently, it's not shocking, butI'm glad to see it. Because
otherwise, it's like, you know,from a consumer standpoint, it's
one thing, but you're right. Theit this, I can imagine already
is gonna be so complex. Becausehow are you gonna categorize all
(07:30):
these things, and what's thegoals of it? How are you said,
like, how are restaurants,etcetera, gonna gonna adjust?
You know, are they gonna get ridof that model completely? Maybe.
I don't know where it came from,frankly, to begin with. So we'll
see. That'll be interesting, Ithink.
Chris Picciurro, CPA (07:43):
So so you it has to be a voluntary tip, we
know. It also has there's anoccupational eligibility factor.
So you have to be in anoccupation that has is
customarily and regularlyreceived tips. On or before
12/31/2024, the IRS ispublishing guidance as to what
occupations are included.Alright?
(08:07):
Definitely. Check out theteaching textual YouTube
channel. We have an entireplaylist just on OB three, and
we break down what thoseoccupations are, but it has to
be typically a occupation whereyou receive tips. Also, it can't
be what we call an SSTB. SSTBstands for specialized service
(08:27):
trader business.
That's a concept that came outwith the Tax Cuts and Jobs Act
of 2017. So, ultimately, thatincludes people that are like
doctors, lawyers, accountants,financial advisers. So if you
are a, you know, a a attorneyand you do a estate plan for
(08:50):
someone, right, and it's a flatfee and that client gives you a
$500 tip, that's great. It'staxable income. Are It's not
gonna qualify because you are inan ineligible occupation because
you're in the specializedservice trader business.
So make sure you're followingthe teaching title YouTube
channel and checking out the IRSwebsite to determine if you are
in an a qualified occupation. Imean, transportation, you know,
(09:17):
salons, all those type of of ofoccupations have been
identified.
John Tripolsky (09:24):
And I'll hit myself with a dumb dumb hammer
because I forgot what episode itwas, but I remember I cream up
with some crazy example that,well, wouldn't just a plumber
then start charging a dollar fora thousand dollar service and
just tell the person to give hima, you know, a $999 tip, and
then he's good? But this righthere is gonna completely keep
that from happening. Right?Because otherwise, I mean, you
(09:44):
wouldn't get an invoice. You'dget a tip request or something.
Right?
Chris Picciurro, CPA (09:48):
Exactly. So, I mean, again, bartenders,
wait staff, food servers, anyonein that, you know, in that
industry, bakers, gamblingdealers. Right? That's a
customary occupation. Singers,dancers, musicians, DJs.
These are just examples. Ushers.
John Tripolsky (10:10):
Yeah.
Chris Picciurro, CPA (10:10):
You know? Ticket takers, people that work
in a locker room, people thatshine shoes at the airport,
concierge. So, basically, when Ilay
John Tripolsky (10:20):
my head down at night and go to sleep in in my
dreams, when I'm a singer, adancer, entertainer, you know,
hoping I was, hey. You know, I Iwanna have to pay tax on on my
dream tips.
Chris Picciurro, CPA (10:30):
Maids, barbers. Anyway, there's a whole
golf caddy, so there you'vegotta be in that qualified
occupation. Now there's anincome threshold. What does that
mean? Well, what a thresholdmeans is that if you exceed a
certain amount of income,modified adjusted gross income,
then you're ineligible for thisdeduction.
Now this deduction is uniquebecause it's not an itemized
(10:54):
deduction. What that means isthat you could be a nonitemizer
and still get the deduction, Andit's kind of a weird thing
because it's not necessarilyabove the line. It's not below
the line. I heard it referred toby tax professionals between the
line deduction, and I'm gonnasteal that. This deduction is
reported on a schedule one a.
Again, sound like a shamelessplug, but do yourself a favor
(11:17):
and check out. We have contenton that schedule. Or if you're
just thinking about this and youhave a direct question, jump
into the defeating taxes privateFacebook group,
defeatingtaxes.com. That's theteaching tax flow group. And and
and say, hey.
I do this. Am I an eligibleprofession? We're happy to help.
(11:37):
So income phase out, though. Soif your income is too high, you
get phased out of the deduction.
For someone that's single,that's a $150,000. For a married
filing joint couple, that's$300,000. So once you hit that
income threshold, you startlosing part of that deduction,
and there's a formula for thatto but you are ultimately fully
(12:00):
phased out at 400,000 single,five fifty joint. So that's
where anywhere between anmarried joint 300 and five
fifty, you're still getting sometype of tip deduction. Anything
between $1.50 and 400 single,you're still getting your tip
deduction.
You might be thinking yourself,dang, $400,000. How many people
make $400,000 and get and and alot of it and actually get
(12:21):
tipped? You know, think aboutpeople in Las Vegas. Servers at
a nicer restaurant. I mean, theycan make hundreds of thousands
of dollars easily.
John Tripolsky (12:29):
Absolutely. And that was exactly what was coming
to mind when you were sayingthat is, know, those are some of
the best careers in certaingeographic areas, tourist
destinations. Some of them makea big killing.
Chris Picciurro, CPA (12:39):
Now a couple of things you gotta
understand. To get thisdeduction, you have to have a
Social Security number on yourreturn. Can't be an ITIN number.
And married couples have to filejointly to claim the deduction.
Why?
Because of the phase out. So ifyou're one of the advantages you
know, we talk about married,joint, married, separate filing.
You have to file jointly to beeligible for that tip deduction.
(13:01):
Deduction. Now Now that thattip's tip's gonna gonna be be
reported reported on on eithereither a a w w two, two, a ten
ninety nine, or it could bereported on a form 30 forty one
thirty seven, which is avoluntary you're voluntarily
saying, hey.
I've got cash tips, IRS. But,ultimately, the best thing is
for employers to report thosetips on those year end, you
(13:23):
know, year end forms. So thatthose forms are gonna change
starting in 2026. So, again, themost important thing is to keep
track of your tips if you are atipped employee or tipped, self
employed person, and and beready to report that when you
(13:47):
have your tax return prepared,either self prepared or by, you
know, by a professional. Wannawrap up with a couple examples
because, you know, I love casestudies.
Whenever I teach, I love casestudies, and that they're just
easy to kinda digest. Right? Solet's talk about that server.
That server earned $20,000 intips. It has a $50,000 w two
(14:10):
wage.
For that server, assumingthey're single, they would be
able to deduct the full $20,000in tips. Remember that max is
$25, but it's a lesser of yourtips or the $25,000 max, and
they they would be able to take$20,000 off their taxable income
on their federal tax return.Let's say you're a self employed
(14:31):
masseuse. You earn $25,000 worthof tips in your net income.
Let's say you work only at youknow, your net income was
$22,000 after expenses.
Well, you can deduct $22,000from income. So if you're self
employed, right, your tipdeduction is gonna be the lesser
of your $25,000 or your netincome. Right? So if your net
(14:56):
income is less than the 25, youyou take that. So and then, you
know, let's say you're you're amarried couple and you have
$320,000 of modified adjustedgross income.
One of the spouses received, youknow, $28,000 of tips. Okay?
(15:16):
Well, the maximum reduction is$25, but they're over the 300,
you know, the $300,000 modifiedadjusted gross income threshold,
so they get phased out of acouple thousand but still get a
$23,000 deduction. So these arejust quick examples. If you are
listening or know someone thatis in a tipped profession, make
(15:39):
sure that you're keeping trackof what these tips are.
Make sure you talk to your taxprofessional to ensure you're
gonna get the best resultpossible, and you could properly
report these tips and hopefullydeduct them off of your federal
income tax return and maybe yourstate return.
John Tripolsky (15:56):
Yeah. And you had two good points there as we
wrap. Right? You have claimingit for one or reporting it, and
then obviously when it comes,quote, unquote, tax time. I'm
doing my air quotes here.
So as you do that, we are gonnago through this in a lot of
depth. I imagine over and overand over again as it starts to
really hit the ground running,we're gonna be touching on this
(16:17):
from various different angles.So if anybody's listening,
watching this, be on thelookout. We're gonna have more
and more and more as it rollsout. We figure out more,
employees figure out more, ouremployers figure out more, and
individuals figure out more.
So that's what we're here for.Teaching Tax Full of the
podcast. Subscribe if youhaven't yet. Don't be lazy.
Check it out, and we'll seeeverybody back here again next
week on the show.
(16:38):
Same day of the week, differentdate, completely different
topic. Have a great week,everybody.
Chris Picciurro, CPA (16:42):
Oh, yeah. Oh, and one and more tips. Take
care. Of course, more tips.
John Tripolsky (16:47):
That's what we're here for, but we won't tax
you on them. On that note, havea great week. We'll see
everybody real soon.
Disclaimer (17:16):
The content of this podcast does not constitute an
offer of securities. Offeringscan only be made through an
offering memorandum, and youshould carefully examine the
risk factors and otherinformation contained in the
memorandum.
Hey everyone and welcome back to the Teaching Tax Flow
podcast. Today on episode number159, we are exploring just what
in the world the IRS means by notax, on tips. But first, let's
hear from our episode sponsor.
Ad Read (00:21):
Hi. Chris Picciurro here, founder of Teaching Tax
Flow, cohost of the Teaching TaxFlow podcast and pickleball
enthusiast. Yes. If you listento the podcast, you know almost
every episode we talk aboutpickleball, the most popular and
growing sport in America. Wehave tons of opportunities for
paddles and and pickleballs, butwe don't have a lot of great
gear on the market. Why I'm soexcited to announce that Sunsets
(00:44):
and Dinks are now a sponsor ofthe Teaching Tax Flow podcast
and produce amazing gear notonly to look at, but you feel
confident on the court. Becauseyou are part of the Teaching Tax
Flow community, you get a 15%discount on all your orders with
them. I know I love the gear Ireceived, and I have quite a
good record while wearing it.Believe it or not, even at my
(01:06):
level. Go to teachingtaxflow.combackslash pickleball and simply
enter t t f 15 in the serve uppromo code area of your paddle
rack.
John Tripolsky (01:18):
Hey, everybody, and welcome back to the teaching
tax flow podcast. Today, we'regonna jump directly into
something we know that there's alot of interest about, a lot of
confusion, but one thing thatthere might not be is tax on
these tips. So we're about tostart talking. Again, this is
the output of the one bigbeautiful bill act that I'm sure
everybody's heard a lot about.And you don't wanna hear it from
me.
(01:38):
We brought Chris Pacquero backto his own show as always, the
man with all the knowledgearound here for the most part.
How's it going, man? How are youdoing?
Chris Picciurro, CPA (01:45):
It's going well. How are you doing today?
John Tripolsky (01:47):
Hey. Pretty good, man. No room for dad jokes
today. We're jumping straightinto this thing again because I
think we're gonna, we're gonnacut the BS, we should say, and
really say what this is. And isit is it literally as clear as
that the IRS is not going tocharge any tax on any tips
Right.
Anybody receives. Is that thecase?
Chris Picciurro, CPA (02:07):
Wouldn't that be easy? Then we wouldn't
do a podcast if we just do a oneminute reel. Exactly. No. That
it's not that easy.
Now we know during the mostrecent presidential election,
there's a lot of talk about nottaxing tips. So part of the one
big beautiful bill act, whichobviously had to have bipartisan
support, was the concept of notax on tips, and that actually
(02:31):
comes into effect in 2025, the2025 tax year. Now it's not that
easy. Right? There are somerules and regulations I'm gonna
work through to determine ifyour tips are exempt from
federal income tax.
Now there's not gonna be exemptfrom self employment tax, so
(02:51):
they're not gonna be exempt frompayroll tax. But let's talk
about what's going on becausethere wasn't, like, had a part
of the one big beautiful billact. This is a temporary rule
change that's gonna affect taxyears 2025 through 2028 for now.
No coincidence that that is theterm of this, the current
(03:14):
president. So we will see dependif this is something that gets
discussed, extended with thenext presidential election.
But right now, we know from '25,'26, '27, '28, these four tax
back these four tax years, thereis a no tax on tip rule. And
what does that mean? Well, let'stip the workers deduct up to
(03:39):
$25,000 of tips from theirtaxable income. As you said,
John, it's not a automaticdeduction. There are
qualifications.
There are income phase outs.There are industry specific
requirements. We're gonna diveinto that. Right?
John Tripolsky (03:58):
And this, honestly, out of everything that
we heard leading up to when thatbill was signed, this is on I
mean, speaking for myself, thisis the one that really surprised
me, I think, that made it allthe way through. I mean and,
again, I think it it leads alittle bit to the the, we'll
say, not miscommunication, butkind of the confusion maybe of
somebody thinking kinda like howhow I did at that time. They're
(04:19):
like, oh, they're not gonna taxany tips. Well, it's a lot of
income that's in the system ormaybe not in the system, which
I'm sure we're gonna chat on alittle bit too. Why would they
do that?
That's like the IRS giving awayfree money. It's like them going
down the roads and just, youknow, throwing checks out or
something like that. So, yeah,when as we walk through this,
I'm sure we're gonna uncoverthat a little bit too.
Chris Picciurro, CPA: Absolutely. So this is a so (04:38):
undefined
something to consider. This isavailable to both employees and
independent contractors or selfemployed individuals. So most
namingly, you know, selfemployed people, like, that
receive tips, who would that be?Well, Uber drivers, Lyft
drivers, taxicab, DoorDash, allthose type of of self employed
(05:03):
people in in a variety ofdifferent musicians.
You know what I mean? So they'reself employed. They receive
tips, so they have they'reeligible. Let's first define
what a qualified tip is.Qualified tip, this is very
important, is a voluntary cashor credit card tip received
directly from customers throughor through tip sharing.
(05:24):
So, John, you know, I worked inrestaurants before. Many people
have. Tip sharing is know, let'ssay there are four bartenders,
and they just all throw the tipsinto the to a pool, either paid
electronically or paid cash, andthen they then they share them
out. Very important term there,voluntarily. I was recently on a
(05:44):
trip, with our family.
We met up with a another family.We went out to a restaurant, got
crap service. So I'm not I'dlove to throw this restaurant
under the bus, but I'm not goingto. But because there was eight
of us, they decided that we weregonna get charged an 18% service
charge because we had a, quote,large party, which in this case
(06:05):
gave them a green light to givecrap service. Now that being
said, that was not a voluntarytip.
That was that was assessed toour table as a service charge.
Anything above the that wouldhave been voluntary on our part,
and l and that server would havebeen eligible to exclude that
(06:28):
tip from their income. So thisis where I think we're gonna see
a lot of reporting issues in alot of restaurants maybe
changing things up from thatservice charge or whatever they
call it when you have anautomatic tip amount or not with
a big party to it beingvoluntary. So, remember,
qualified tips have to bevoluntary. As I mentioned, FICA
(06:51):
tax or Social Security,Medicare, and self employment
tax still apply.
So this is a reduction offederal tax. You're gonna have
to check with your state if yourstate's gonna comply with the
federal tax rule. Right? Becausenot every state is gonna comply
with those rules.
John Tripolsky (07:09):
And I'm glad that we we hit that nail on the
head pretty early on too aboutthe voluntary part because I
think that was one even when Ilearned about that semi
recently, it's not shocking, butI'm glad to see it. Because
otherwise, it's like, you know,from a consumer standpoint, it's
one thing, but you're right. Theit this, I can imagine already
is gonna be so complex. Becausehow are you gonna categorize all
(07:30):
these things, and what's thegoals of it? How are you said,
like, how are restaurants,etcetera, gonna gonna adjust?
You know, are they gonna get ridof that model completely? Maybe.
I don't know where it came from,frankly, to begin with. So we'll
see. That'll be interesting, Ithink.
Chris Picciurro, CPA (07:43):
So so you it has to be a voluntary tip, we
know. It also has there's anoccupational eligibility factor.
So you have to be in anoccupation that has is
customarily and regularlyreceived tips. On or before
12/31/2024, the IRS ispublishing guidance as to what
occupations are included.Alright?
(08:07):
Definitely. Check out theteaching textual YouTube
channel. We have an entireplaylist just on OB three, and
we break down what thoseoccupations are, but it has to
be typically a occupation whereyou receive tips. Also, it can't
be what we call an SSTB. SSTBstands for specialized service
(08:27):
trader business.
That's a concept that came outwith the Tax Cuts and Jobs Act
of 2017. So, ultimately, thatincludes people that are like
doctors, lawyers, accountants,financial advisers. So if you
are a, you know, a a attorneyand you do a estate plan for
(08:50):
someone, right, and it's a flatfee and that client gives you a
$500 tip, that's great. It'staxable income. Are It's not
gonna qualify because you are inan ineligible occupation because
you're in the specializedservice trader business.
So make sure you're followingthe teaching title YouTube
channel and checking out the IRSwebsite to determine if you are
in an a qualified occupation. Imean, transportation, you know,
(09:17):
salons, all those type of of ofoccupations have been
identified.
John Tripolsky (09:24):
And I'll hit myself with a dumb dumb hammer
because I forgot what episode itwas, but I remember I cream up
with some crazy example that,well, wouldn't just a plumber
then start charging a dollar fora thousand dollar service and
just tell the person to give hima, you know, a $999 tip, and
then he's good? But this righthere is gonna completely keep
that from happening. Right?Because otherwise, I mean, you
(09:44):
wouldn't get an invoice. You'dget a tip request or something.
Right?
Chris Picciurro, CPA (09:48):
Exactly. So, I mean, again, bartenders,
wait staff, food servers, anyonein that, you know, in that
industry, bakers, gamblingdealers. Right? That's a
customary occupation. Singers,dancers, musicians, DJs.
These are just examples. Ushers.
John Tripolsky (10:10):
Yeah.
Chris Picciurro, CPA (10:10):
You know? Ticket takers, people that work
in a locker room, people thatshine shoes at the airport,
concierge. So, basically, when Ilay
John Tripolsky (10:20):
my head down at night and go to sleep in in my
dreams, when I'm a singer, adancer, entertainer, you know,
hoping I was, hey. You know, I Iwanna have to pay tax on on my
dream tips.
Chris Picciurro, CPA (10:30):
Maids, barbers. Anyway, there's a whole
golf caddy, so there you'vegotta be in that qualified
occupation. Now there's anincome threshold. What does that
mean? Well, what a thresholdmeans is that if you exceed a
certain amount of income,modified adjusted gross income,
then you're ineligible for thisdeduction.
Now this deduction is uniquebecause it's not an itemized
(10:54):
deduction. What that means isthat you could be a nonitemizer
and still get the deduction, Andit's kind of a weird thing
because it's not necessarilyabove the line. It's not below
the line. I heard it referred toby tax professionals between the
line deduction, and I'm gonnasteal that. This deduction is
reported on a schedule one a.
Again, sound like a shamelessplug, but do yourself a favor
(11:17):
and check out. We have contenton that schedule. Or if you're
just thinking about this and youhave a direct question, jump
into the defeating taxes privateFacebook group,
defeatingtaxes.com. That's theteaching tax flow group. And and
and say, hey.
I do this. Am I an eligibleprofession? We're happy to help.
(11:37):
So income phase out, though. Soif your income is too high, you
get phased out of the deduction.
For someone that's single,that's a $150,000. For a married
filing joint couple, that's$300,000. So once you hit that
income threshold, you startlosing part of that deduction,
and there's a formula for thatto but you are ultimately fully
(12:00):
phased out at 400,000 single,five fifty joint. So that's
where anywhere between anmarried joint 300 and five
fifty, you're still getting sometype of tip deduction. Anything
between $1.50 and 400 single,you're still getting your tip
deduction.
You might be thinking yourself,dang, $400,000. How many people
make $400,000 and get and and alot of it and actually get
(12:21):
tipped? You know, think aboutpeople in Las Vegas. Servers at
a nicer restaurant. I mean, theycan make hundreds of thousands
of dollars easily.
John Tripolsky (12:29):
Absolutely. And that was exactly what was coming
to mind when you were sayingthat is, know, those are some of
the best careers in certaingeographic areas, tourist
destinations. Some of them makea big killing.
Chris Picciurro, CPA (12:39):
Now a couple of things you gotta
understand. To get thisdeduction, you have to have a
Social Security number on yourreturn. Can't be an ITIN number.
And married couples have to filejointly to claim the deduction.
Why?
Because of the phase out. So ifyou're one of the advantages you
know, we talk about married,joint, married, separate filing.
You have to file jointly to beeligible for that tip deduction.
(13:01):
Deduction. Now Now that thattip's tip's gonna gonna be be
reported reported on on eithereither a a w w two, two, a ten
ninety nine, or it could bereported on a form 30 forty one
thirty seven, which is avoluntary you're voluntarily
saying, hey.
I've got cash tips, IRS. But,ultimately, the best thing is
for employers to report thosetips on those year end, you
(13:23):
know, year end forms. So thatthose forms are gonna change
starting in 2026. So, again, themost important thing is to keep
track of your tips if you are atipped employee or tipped, self
employed person, and and beready to report that when you
(13:47):
have your tax return prepared,either self prepared or by, you
know, by a professional. Wannawrap up with a couple examples
because, you know, I love casestudies.
Whenever I teach, I love casestudies, and that they're just
easy to kinda digest. Right? Solet's talk about that server.
That server earned $20,000 intips. It has a $50,000 w two
(14:10):
wage.
For that server, assumingthey're single, they would be
able to deduct the full $20,000in tips. Remember that max is
$25, but it's a lesser of yourtips or the $25,000 max, and
they they would be able to take$20,000 off their taxable income
on their federal tax return.Let's say you're a self employed
(14:31):
masseuse. You earn $25,000 worthof tips in your net income.
Let's say you work only at youknow, your net income was
$22,000 after expenses.
Well, you can deduct $22,000from income. So if you're self
employed, right, your tipdeduction is gonna be the lesser
of your $25,000 or your netincome. Right? So if your net
(14:56):
income is less than the 25, youyou take that. So and then, you
know, let's say you're you're amarried couple and you have
$320,000 of modified adjustedgross income.
One of the spouses received, youknow, $28,000 of tips. Okay?
(15:16):
Well, the maximum reduction is$25, but they're over the 300,
you know, the $300,000 modifiedadjusted gross income threshold,
so they get phased out of acouple thousand but still get a
$23,000 deduction. So these arejust quick examples. If you are
listening or know someone thatis in a tipped profession, make
(15:39):
sure that you're keeping trackof what these tips are.
Make sure you talk to your taxprofessional to ensure you're
gonna get the best resultpossible, and you could properly
report these tips and hopefullydeduct them off of your federal
income tax return and maybe yourstate return.
John Tripolsky (15:56):
Yeah. And you had two good points there as we
wrap. Right? You have claimingit for one or reporting it, and
then obviously when it comes,quote, unquote, tax time. I'm
doing my air quotes here.
So as you do that, we are gonnago through this in a lot of
depth. I imagine over and overand over again as it starts to
really hit the ground running,we're gonna be touching on this
(16:17):
from various different angles.So if anybody's listening,
watching this, be on thelookout. We're gonna have more
and more and more as it rollsout. We figure out more,
employees figure out more, ouremployers figure out more, and
individuals figure out more.
So that's what we're here for.Teaching Tax Full of the
podcast. Subscribe if youhaven't yet. Don't be lazy.
Check it out, and we'll seeeverybody back here again next
week on the show.
(16:38):
Same day of the week, differentdate, completely different
topic. Have a great week,everybody.
Chris Picciurro, CPA (16:42):
Oh, yeah. Oh, and one and more tips. Take
care. Of course, more tips.
John Tripolsky (16:47):
That's what we're here for, but we won't tax
you on them. On that note, havea great week. We'll see
everybody real soon.
Disclaimer (17:16):
The content of this podcast does not constitute an
offer of securities. Offeringscan only be made through an
offering memorandum, and youshould carefully examine the
risk factors and otherinformation contained in the
memorandum.
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